How much currency did the Ministry of Finance buy? Everything is according to the budget: the purchase of foreign currency by the Ministry of Finance is based on the country’s financial plan

15:44 — REGNUM Recently, the Russian Ministry of Finance announced that it will continue to buy currency on the stock exchange within the framework of the so-called “budget rule.” On social networks and in the press, the Ministry of Finance’s statement is interpreted as an alleged intention to maintain the stability of the US dollar instead of the ruble, especially since in 2017 the dollar turned out to be one of the outsiders of the foreign exchange market, and since January 2018 it has been showing weak dynamics. In fact, the purpose of purchasing foreign currency by the Ministry of Finance of the Russian Federation is quite transparent, she told the correspondent IA REGNUM Deputy Director of the Analytical Department of Alpari Natalia Milchakova.

The point is that as long as the price of oil exceeds the average level set in the state budget ($40 per barrel), the Ministry of Finance will exchange oil and gas windfalls received by the state in rubles for dollars and euros in order to accumulate them in the National Welfare Fund for a rainy day. And the funds accumulated in the National Welfare Fund can then be used to finance the most important investment projects or, for example, to index pensions, if the ruble falls significantly again, inflation rises, and the Pension Fund budget again bursts at the seams.

“That is, the Ministry of Finance buys currency not because its leadership for some reason is asleep and dreams of how to support the dollar, but because it is obliged to support the real sector of the economy during the crisis and finance social spending.

But if suddenly a new crisis comes again, and it is larger than the previous one to such an extent that the average oil price falls below $40 per barrel, then the Ministry of Finance will stop buying foreign currency and will instead begin to buy rubles that have become much cheaper, so as not to allow the devaluation to go beyond control .

This is our “budget rule”, and it’s nothing personal, that is, it’s difficult to convict our Ministry of Finance of any sympathy for the dollar, euro or other world reserve currencies,” - Milchakova explained.

In the very fact that the Ministry of Finance is implementing the “budget rule” there is nothing that threatens the stability of the ruble, however, financial markets have many questions for the ministry. For example, why the volume of currency purchases is constantly growing from month to month.

Thus, in December 2017, the Ministry of Finance purchased foreign currency in the amount of 204 billion rubles, in January of this year - already more than 257 billion rubles, and in February, the volume of foreign currency purchases will increase, according to the ministry, to 298.1 billion rubles.

“It is clear that the increase in foreign currency purchases is associated with the rising price of oil and, accordingly, with the growth of excess oil and gas profits. But does Russia need such volumes of foreign currency in the National Welfare Fund?

After all, these are not the international reserves of the Central Bank, and in conditions when the United States is threatening to expand sanctions against Russia and even almost extended them to investors in Russian government bonds, do we need to support the dollar like that? And also the euro, especially considering that the European Union is in no hurry to lift anti-Russian sanctions,” the expert asks.

It should be noted that even economists with liberal and pro-Western views are quite critical of the $40 per barrel oil price included in the 2018 state budget. Thus, the head of the Center for Strategic Research, former Deputy Prime Minister Alexey Kudrin believes that for 2018, in order to more effectively implement the “budget rule,” it would be entirely possible to set a higher “cut-off price” of $45 per barrel.

“The Russian Ministry of Finance has an unequivocal answer to this question - so far the National Welfare Fund has accumulated too few reserves for us to look too arrogantly at every accumulated ruble of oil and gas revenues. As of January 1, 2018, the volume of the National Welfare Fund was only 3.75 trillion rubles. or just over $65 billion.

For comparison: the volume of the Norwegian state Welfare Fund is approaching almost $900 billion. The volume of the Russian National Welfare Fund is barely 4% of GDP, while the state has set the task of bringing the amount of funds in the National Welfare Fund to 7% of GDP (at the same time, GDP should grow, not shrink and not stagnate),” Milchakova cited the figures.

In her opinion, the goals are clear, although investors often have another question: how will the Ministry of Finance’s purchases of foreign currency affect the ruble exchange rate, and will the ruble collapse if our ministry continues to purchase foreign currency in such colossal volumes?

Fortunately, this question can be answered in the negative. Since December 2017, while the Ministry of Finance was buying foreign currency, the ruble strengthened against the dollar by 4.5%, and against the euro, although it fell in price, it was only 0.01%.

“So there is nothing wrong with foreign currency purchases by the Ministry of Finance. And against the backdrop of the fall in American and European stock markets and the concomitant strengthening of the dollar, it is useful to keep savings in foreign currency. In the short term, the ruble may fall in price, according to our estimate, to 58 rubles/dollar. and 72 rubles/euro.

If the price of Brent oil does not fall below $60 per barrel during 2018, then the dollar may trade in the range of 55–59 rubles, and the euro in the range of 68–72 rubles,” — the expert expressed his opinion.

As reported IA REGNUM, the Ministry of Finance of the Russian Federation announced that in the period from February 7 to March 6, 2018 it will purchase almost 300 billion rubles in foreign currency. The purchased currency will be credited to the Federal Treasury accounts with the Bank of Russia.

The Ministry of Finance became the main newsmaker for the foreign exchange market when it published material on a new policy regarding reserve funds at the end of January. The main novelty concerns the buying and selling of currency depending on tax revenues from the oil sector, or simply the new “fiscal rule”. How will the Ministry of Finance actually affect the exchange rate, which has been at its highest since June 2015?

A new round of addiction

It is assumed that the volume of purchase/sale transactions will depend on the amount of oil and gas revenues from the federal budget. The Urals oil price of $40 per barrel is the starting price. If the actual price exceeds this level (as has happened recently), then the Ministry of Finance will buy foreign currency in the amount of excess oil and gas revenues; if actual prices fall below $40, a sale is assumed. At the same time, the accumulated volume of sales transactions cannot exceed the volume of foreign currency purchases accumulated since the beginning of operations.

The Central Bank was designated as the agent, which began “interventions for the Ministry of Finance” on February 7.

How this will affect the ruble is theoretically clear: it should weaken, although it continues to strengthen and has already broken through the psychological mark of 60 per euro. But let's see what happened to the exchange rate in 2016? The ruble turned out to be the most profitable currency: Bloomberg recalls that the strengthening amounted to more than 20%. At the same time, the ruble experienced a stress test in the first quarter of 2016, when the price of oil fell to an average of $28.75 per barrel. But even then the rate did not reach 100 rubles per dollar. Dependence on the oil market has not disappeared, but the average correlation between ruble and oil returns has decreased compared to 2015. Nevertheless, what the Ministry of Finance decided to do could lead to a new round of dependence.

The purchase formula looks logical: if there is an excess of income over what is provided for by law, the Ministry of Finance can use these funds.

However, three questions arise that I would like answers to. First, is it possible to use additional revenues to close the budget deficit? It is expected that it will amount to about 2.7 trillion rubles in 2017. If the Ministry of Finance begins to fill reserve funds, it will have to borrow something from the markets, and how useful this will be both for the budget and for investments of private companies is not entirely clear.

Second: what will the Bank of Russia have to do? Since the Ministry of Finance is going to influence the exchange rate (and states that it wants to move it to about 65 rubles per dollar, that is, drop it by about 10%), this will affect not only the ruble, but also inflation. With such a reduction, additional inflation could range from 1% to 2.5%. This means that in order to achieve the target of 4% at the end of 2017, the Central Bank will have to adhere to a conservative monetary policy and not reduce the key rate for a little longer. Thus, actions on the part of the Central Bank may contribute to a slight slowdown in the economy relative to the base scenario for a rate cut.

The third is a particular question regarding the formula itself. What happens when the ruble weakens, with the price of oil fixed? The Ministry of Finance's revenues from oil and gas revenues in rubles will increase. This will lead to a formal desire to buy more dollars. As a result, additional volatility appears - any depreciation will lead to an increase in investments in dollars.

Of course, this episode is unlikely: in recent years, the ruble has weakened mainly simultaneously with a sharp drop in oil prices, and at the same time the ruble price of a barrel has decreased significantly. Most likely, additional income will not appear in such a scenario.

But what happens if such a decline occurs not because of oil, but because of the outflow of capital from foreign investors? In this case, the probability of increased exchange rate fluctuations seems quite high.

Note that data on the volume of purchases by the Ministry of Finance will be published every third working day of the month; for the first time they appeared on Friday, February 3, shortly before the announcement of the unchanged key rate of the Central Bank. And in the motivation for maintaining the 10% level there are words about the “budget rule.”

How will this change affect the banking system?

The purchase of foreign currency will provide an additional influx of ruble liquidity. Nevertheless, the Central Bank has tools to sterilize its excess, including deposit auctions and Bank of Russia bonds.

It is difficult to say whether credit institutions will be able to “earn money” from this process. The concern is how the move will impact banks' balance sheets by increasing non-performing loans. Real incomes are falling, mortgage defaults continue to rise, and the additional impact on the currency could only make it more difficult to overcome the problems.

How will the sale and purchase be structured?

Finally, an additional interesting question is how exactly the Ministry of Finance structures purchases and sales during the year. In recent years, the funds of the Reserve Fund were usually sold directly to the Central Bank, that is, they did not enter the foreign exchange market. If the Ministry of Finance buys currency on the market (which can amount to $1-2 billion a month - very serious funds) and sells it to the Central Bank, you will get a situation where gold and foreign exchange reserves are growing, while there is a constant outflow of money on the foreign exchange market.

In the case where everyone knows how purchases are going, there may be an opportunity for simple investment strategies - “buy before the Ministry of Finance, sell to the Ministry of Finance.”

In addition, if the combination “buy on the market, sell the Central Bank” is implemented, then the actions of the Ministry of Finance can greatly manipulate the exchange rate, increasing intra-month volatility.

Let us mention the Central Bank's attempts to buy currency on the market when the ruble is too strong. In May - July 2015, he carried out interventions, buying approximately 150-200 million dollars a day - even more than can be expected from the Ministry of Finance. During this time, the exchange rate changed from 50 to 60 rubles per dollar (of course, mainly due to the fall in oil prices) - and the experiment was stopped.

Who will benefit from a weak ruble?

It would seem that we know the answer who will be the main beneficiaries in this situation - the Ministry of Finance will close part of the deficit, exporters will receive some additional income due to lower costs in dollar terms, and it will be easier for them to compete on price on the world market.

But there are details here. According to some estimates, Russian non-commodity exports amounted to about 15% of total exports - and demand for primary goods is determined by world markets, which are little influenced by the ruble exchange rate.

At the same time, non-resource exports even increased slightly in the third quarter of 2016, despite the strong ruble and the presence of sanctions. The same picture of growth was in 1995-2004: as the head of the Economic Expert Group Yevsey Gurvich and his colleagues showed, against the backdrop of a strengthening ruble, almost all exporters, including non-resource exporters, grew.

Moreover, the depreciation of the local currency helps to increase exports only partially. Another (and more important) component of export growth is the “taste” of other countries for our goods and services, their opinion about the “quality” of things offered for exchange. And this means that depreciation will not be a panacea - to conquer new markets and retain old ones, it is necessary to prove that we are able to do better than other countries.

Moreover, if the Central Bank can keep inflation at the target value of 4% without undue pressure on the economy, then we, the population, should not feel a strong impact on our consumption. However, real disposable income has fallen (year-over-year) every month in 2015 and 2016 so far, so it's hard to say there's no impact on the economy.

conclusions

Apparently, the Ministry of Finance will use the excess funds for savings, and this could have a significant impact on the exchange rate. Everything will be interesting: how communication will change after the purchase parameters are clarified, and how the Central Bank will react to the indirect impact on inflation, and how much this will help exporters. If the monetary and fiscal authorities manage to walk the line together, push the economy, not increase inflation and accumulate additional reserves, it will be great. If not, well, the fiscal rule can be reversed, just as the Central Bank stopped interventions in 2015 after significant external changes.

Oleg SHIBANOV, associate professor of finance at NES, director of the MastersofArtsinFinance program at NES, academic director of economics programs at Sberbank Corporate University

Olga SHCHERBAKOVA, academic director of finance programs, head of the school of finance at Sberbank Corporate University, for Banki.ru

As stated in the message on the website of the Russian Ministry of Finance, the expected volume of additional oil and gas revenues of the federal budget, associated with the excess of the actual oil price above the base level, is projected in January 2018 in the amount of 257.1 billion rubles.

And it is this amount that the government intends to spend on the domestic foreign exchange market in the period from January 15 to February 6, 2018. The daily volume of foreign currency purchases will be the equivalent of 15.1 billion rubles.

The Ministry of Finance will involve the Bank of Russia in carrying out operations. Every working day during the specified period, the Central Bank will enter into transactions for the purchase of foreign currency at the Moscow Exchange, evenly throughout the trading day. The purchased foreign currency will be credited to the accounts of the Federal Treasury with the Central Bank of the Russian Federation.

This is the second time in recent years that the Russian Ministry of Finance has announced a decision to increase production in this way. At the end of last year, this decision did not lead to a noticeable weakening, although the volume of purchases was sensitive. This time it is planned to increase the volume of currency purchases by 25% compared to December, which will correspond to an increase of 2.1%.

“Watching such actions of the Ministry of Finance, you wonder: why has it become so active in recent months? And what caused this decision?” says Global FX investment analyst Sergei Kostenko. In his opinion, these actions are due to the desire to increase financial fat in the wake of high prices for crude oil, which bring significant ruble income, and to prepare for possible challenges of both a political (in the run-up to the presidential elections) and economic nature. Previously, against the backdrop of falling oil prices, the state budget lost a significant amount of weight, which even led to talk among experts about the likelihood of a money issue to eliminate financial gaps in the state budget.

Another reason, Sergei Kostenko believes, may be the expectation of new American sanctions, which will come into force in February, and the possibility of attacks on the ruble by non-residents during the pre-election period. In this case, it will be possible to stop such probable actions by currency interventions.

Assessing the pros and cons for our economy from the Ministry of Finance’s activity in the domestic foreign exchange market, the analyst believes that the only benefit will be the stabilization of the domestic foreign exchange market, although this in itself is not small.

So the Ministry of Finance’s decision to buy foreign currency is unlikely to have a strong negative impact on the ruble exchange rate, since it has high oil prices on its side, as well as high demand for federal loan bonds (OFZ), which attract foreign investors for speculative purposes. Therefore, according to the forecast of Sergei Kostenko, paired with the dollar until the end of this month, the ruble will remain in the range of 56.00-60.00, paired with the euro 67.00-71.00.

Ministry of Finance before vacation

The Ministry of Finance’s calculation is quite pragmatic, says Alor Broker analyst Alexey Antonov. Firstly, the state needs currency to pay for the import of goods and services; these are expenses that cannot be avoided. So why not buy dollars now, while they are relatively cheap, so that later, when the rate is higher, you can spend them? The logic is similar to the purchase of currency by individuals before a vacation. Secondly, the Ministry of Finance has long been counting on: in 2017–2020, the ministry expects the average nominal exchange rate to be 64.8 rubles, in the next 5 years - 71.5 rubles, in 2026–2030 - 77.1 rubles.

And why not try to speculate on this growth in the exchange rate, especially since the Ministry of Finance is a market maker: it has the largest volumes on the market, its purchase of dollars worth 257 billion rubles will inevitably move the quotes up, that is, it will win in any case, the analyst is sure . He will buy it for 57-60 rubles and sell it in six months for 65-62 rubles, relatively speaking. Thirdly, Antonov continues, the Ministry of Finance needs to support Russian exports, which suffer from excessive strengthening of the domestic currency, and this task can also be solved by simply buying dollars and depreciating the ruble.

The Central Bank will help by lowering the key rate and squeezing carry traders out of the ruble-dollar pair, whose actions should also not be discounted. As soon as the spread between the key rate of the Central Bank and the Fed reserve rate becomes minimal, carry traders will begin to massively sell ruble assets and the ruble and withdraw funds into foreign currency, and then abroad. Against this background, the depreciation of the ruble looks almost inevitable, if not for oil.

The relatively high price of oil causes the ruble to strengthen, and when Brent is about to be given perhaps $70 per barrel, it will not be easy to fight this strengthening, Antonov believes. In general, these swings with the fall and rise of the national currency exchange rate, of course, look somewhat depressing from the point of view of the population, who simply need a stable national currency, no matter what methods.

Why, the expert asks, should citizens run to exchange offices and try to guess the future exchange rate of the dollar, especially in conditions when the overwhelming majority of citizens have no savings, they receive their salaries in rubles, and immediately spend on current consumption? And when, since there are no savings, then there are no tools for hedging currency risks, and the depreciation of the ruble leads to the impossibility of traveling even to neighboring countries for a short vacation?

In February, the Ministry of Finance spent 82 billion rubles on the purchase of foreign currency, according to Central Bank data for the period from February 8 to February 28. As many experts expected, operations were uneven and the volume of operations varied.

The Bank of Russia began publishing details of the Ministry of Finance’s operations in the foreign exchange market. Additional information appeared in the report “Factors Forming Liquidity in the Banking Sector”.

Obviously, this tactic was used to reduce volatility.

I will note, for example, that on February 20 there were no transactions at all, but the very next day, on the 21st, twice as much currency was purchased - 12.7 billion rubles. February 20 was a holiday in the United States, which meant little market activity and Treasury operations could cause major fluctuations.

In currency terms, the volume of transactions is estimated at approximately $1.3 billion. Market participants note that the Ministry of Finance’s operations did not have a visible impact on the market, however, it must be said that with stable oil prices over the month, the dollar and euro still added approximately 2.5 rub.

By the way, in March the situation on the foreign exchange market may change significantly. In any case, the exchange rate will be influenced by other factors, for example, a peak in payments on external debt, as well as a reduction in the balance of payments.

The ruble will also traditionally be affected by oil prices. And although there is still a lull in the oil market, at any moment prices can go up or down - everything will depend on which factor outweighs: the reduction in production by OPEC countries or the increase in shale activity in the United States.

So far, both of these factors balance each other.

Production growth continues in the US. Over the week, daily production increased by 31 thousand barrels and amounted to 9 million 32 thousand barrels.

Well, oil reserves in the United States have been growing for the eighth week in a row, updating another record - 520 million barrels.

By the way, the day before the Ministry of Industry and Trade once again spoke about the desired exchange rate for the ruble. In particular, Deputy Minister of Industry and Trade of the Russian Federation Vasily Osmakov said that the government has already decided on the optimal exchange rate for the ruble.

At the same time, the Vedomosti newspaper refers to another study - the Institute for Economic Policy (IEP), conducted at the end of February. So, according to this survey, industrialists will be satisfied with an exchange rate of 54.5 rubles, since the share of imported components in production is large and it was not possible to replace it with domestic ones, which means it is beneficial to have a sufficiently strong national currency.

Will this lead to a weakening of the ruble, as happened in 2015, when as a result of currency interventions by the Central Bank, the ruble fell in price against the dollar by almost 40% - experts told the site.

100 million dollars a day

Gleb Zadoya, head of the analytics department at ANALITIKA Online:

Today, the Ministry of Finance began buying foreign currency using additional revenues received by the budget from the sale of oil and gas.

The volumes of purchases announced are relatively small. A little more than 6 billion rubles per day will be allocated to the foreign exchange market. Thus, the Ministry of Finance will purchase about $100 million worth of foreign currency every day. The goal is quite simple. Over the past two years of the crisis, the reserves accumulated during the “fat” zero years have been greatly reduced. If the state had continued to spend them at the same pace as it did before, then already in 2017 we would have lost the reserve fund and would have started spending the national welfare fund.

Another important goal is to contain the strengthening of the Russian ruble. It strengthened quite strongly in 2016 thanks to rising oil prices. However, its further growth may threaten domestic producers. Russian financial authorities, government members and top managers of state banks have recently repeatedly pointed out the excessive strengthening of the Russian currency.

It is still quite difficult to say how the purchase of foreign currency will affect the dollar exchange rate. It is obvious that the state’s position on this issue will be clearly stated - “we don’t need an expensive ruble.” This position in itself will provide room for the dollar to strengthen against the ruble.

At the same time, the volume of daily purchases is relatively small compared to the total turnover of the Russian foreign exchange market. Therefore, you should not expect any strong growth in the foreign exchange rate. Moreover, the Ministry of Finance emphasized that the implementation of this measure should not significantly affect the ruble. We believe that the exchange rate may change by 2 - 3 rubles. It will be much more influenced by the dynamics of oil prices and the general situation in the Russian economy.

However, there is clearly one plus from all this. Reserves will be spent more slowly, and Russia will be able to look to the future with more confidence. Also, the operations of the Ministry of Finance will be able to reduce the dependence of the economy and exchange rate on shocks in the oil market.

A strong ruble is not needed

Alexander Egorov, leading analyst at TeleTrade Group also believes that the regulator’s operations will most likely not be able to exert significant pressure on the ruble:

It should be taken into account that the value of the ruble is also affected by the dynamics of the oil market, where generally positive sentiment towards the rising cost of raw materials prevails, as well as geopolitical factors,” says the expert. - According to a statement by the new US Vice President Mike Pence, sanctions against Russia may be lifted if there is successful cooperation in the fight against ISIS (an organization banned in Russia) and limiting the global nuclear threat. Thus, favorable circumstances are developing for the Russian ruble in all directions. In the near future, the cost of the dollar on the local market will be in the range of 58 - 60 rubles per dollar.

Not so rosy expectations from the Central Bank's currency interventions Andrey Dirgin, director of the analytical department of Alfa-Forex:

The effect of the first dollar purchases by the Central Bank and the Ministry of Finance on the open market is visible to the naked eye. The dollar/ruble pair came close to the 60 mark, having gained almost 1% since the beginning of the day. It is quite appropriate to state the “beginning of the end” of the era of a strong ruble, at least in the foreseeable future. The high exchange rate of our currency is beneficial only to the population, since it reduces the cost of imports and foreign travel. At the same time, the government views this factor in a diametrically opposite way: the more expensive the ruble, the lower the income from the sale of oil and gas. With a deficit budget, this becomes a very serious problem. In such conditions, the growth of the dollar/ruble pair to around 65 is only a matter of time. And it can be achieved by the end of the 1st quarter of 2017.